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Published on 25 February 2011by Tony Groom

HMRC Taking a Tougher Line on Debt Recovery

Evidence is emerging that HM Revenue and Customs is adopting a tougher

approach to PAYE, VAT and tax arrears and increasingly using its powers of distraint

to take over control of the goods, stock and assets of businesses.

In one example this week, just two hours after rescue adviser Tony Groom, of K2

Business Rescue, was appointed by a company in difficulties, HM Revenue and

Customs (HMRC) officers appeared at the premises and levied distraint on all the

company’s assets and stock. He reports that he is hearing similar stories from other

turnaround and restructuring professionals.

The issue of a distraint notice (a C204 notice, also called a distress or walking

possession notice), under HMRC powers allows it to take control of everything seized

and while it does not necessarily remove property at that point, it means that the

company cannot continue trading and is effectively put out of business because it is

prevented from using its stock and cannot either sell or give away anything that has

been distrained.

This walking possession is used rather like Winding Up Petitions (WUPs) when HMRC

has exhausted attempts to communicate with the company. The communication

leading up to it is generally in the form of letters advising the company that HMRC

intends to take action. While the proposed action is normally specified, HMRC is not

obliged to give a date for their intended action.

The shock for most companies is when HMRC follows through with the actual action

because it appears to come as a surprise. However when they review their

correspondence it should not have been.

K2 Business Rescue The Emergency Service for Business

Call Tony Groom on 0844 8040 540

Following issue of the C204 the company is normally given just five days to come up

with the money it owes. If the company does not pay or come up with alternative

proposals, HMRC or an appointed agent can then take everything away for sale.

This hardline change of tactics comes after figures were published at the end of

January showing that the HMRC rejection rate for Time to Pay (TTP) arrangements

had more than doubled in 2010, climbing from 2.7% in 2009 to 5.8% in 2010.

These percentages seem small in view of the measures being taken when

agreement is not reached. HMRC seems to want to get the message across that it

will take the action necessary when companies fail to respond to their

correspondence.

TTP is a very real solution for companies that cannot pay. The scheme, introduced in

November 2008 in response to the recession, had been welcomed, particularly by

small businesses, as being one of the most effective tools for helping companies to

survive the recession.

However, Andrew Cave, spokesman for the Federation of Small Businesses, said his

organisation had been hearing from some businesses that they had received letters

saying that the scheme was now being wound up. This has been denied by HMRC,

whose spokesman said the scheme was still available and the criteria for agreeing

arrangements had not changed in any way

Tony Groom says he does not believe that the scheme is being wound up as his

experience is that they are being considered, but that HMRC is wanting TTP

arrangements to be shorter payment periods, often three months.

While for the last two years HMRC has supported government policy of providing a

light touch approach to businesses in difficulty, it is responsible for collecting arrears

and not for saving businesses.

“It would appear that the government was alarmed at the high value of outstanding

HMRC arrears, which would explain the shift in HMRC action,” he says. “While levying

distraint was very much a collection tool used by HMRC up to seven or eight years

ago, since then it has more commonly collected debt by county court or winding up

petitions.”

This also suggests a change in Government policy as HMRC has no direct

responsibility for helping companies to continue to trade. Tony Groom asks: “Do the

politicians want companies to continue trading or do they just want their money

regardless of the effect it might have on the economy’s ability to recover from the

recession? They are basing the recovery on private sector growth, relying on it to

create the jobs needed to absorb public sector redundancies.”

K2 Business Rescue The Emergency Service for Business

Call Tony Groom on 0844 8040 540

The Enterprise Act of 2004 removed the HMRC status as a preferential creditor in

insolvent companies. It would seem that this more aggressive use of their power to

seize goods is a way of restoring the preferential status without the requirement of a

judgement. Until this recent development most enforcement action had been

carried out by bailiffs and sheriffs collecting outstanding judgement debts on behalf

of creditors.

Although HMRC has issued letters of warning about its intention to activate its

distraint powers, he says, in the past few years he is not aware of them being

followed up: “This is a very big and significant shift in behaviour”.

If a company receives a notice of intention to either wind up or distrain it should not

delay in seeking the services of insolvency or turnaround advisers.

We are not Insolvency Practitioners. We operate within the law to protect our clients and their wealth. Our team has worked for over 20 years to help stabilise and return hundreds of businesses to profitable growth. Once appointed, Insolvency Practitioners do not work for you, they work for creditors and use your company’s assets to pay themselves. We work for you, not creditors.

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